Shale Oil

Oklahoma education is tied to an overall funding crisis. You can’t talk about Oklahoma finances without talking about the oil industry and specifically, shale oil.

Shale oil production is a process of accessing oil that has previously been locked away within the rock deep underground. Not long ago, the only profitable way to drill for oil involved horizontal wells that dug into large pockets. Eventually, those pockets became difficult to find and the old “bobbing donkey” wells stopped pumping. In the last decade, however, new technologies like horizontal drilling and hydraulic fracking have opened up new avenues for the black stuff.

How does this affect Oklahoma’s economy? It’s much more than just selling the oil. Images such as the one above are misleading, namely because there is never just one pipe. In reality, there would be dozens of pipes jutting in all directions. This was beautiful for the Oklahoma economy because someone had to build all that. Manufacturers built the pipes, the pumps, and the thousands of other support jobs created to support the drilling. People also had to truck all that, and local communities also began investing in infrastructure. The wells were only a part of it. The process was extremely labor intensive, which meant jobs and enough taxes in 2013 that Oklahoma’s problems included figuring out how to spend the surplus.

This economic boom didn’t happen by accident. Oklahoma used to have a high excise tax on oil. Excise taxes are taxes paid when a resource is exited from the soil. Oklahoma excise taxes were around 7% prior to the oil boom. But Oklahoma legislatures knew enough about the oil industry to know a horizontal well at the time cost around 5 times as much to build than vertical wells, though they had much more potential. They also knew that Oklahoma wasn’t the only place in the nation this technology could be used. So Oklahoma made the choice to lower excise taxes and offer other subsidies to oil companies to choose Oklahoma over other states. It paid off. Because of that choice, Oklahoma experienced an oil boom, and the US is currently experiencing the products of that wealth today.

In fact, the success of shale oil was so monumental that it had worldwide effects and put the United States to be a net oil exporter by 2020. Some people weren’t happy about that, like Saudi Arabia, who have long enjoyed the wealth gained from a profitable relationship with the United States and exporting its vast oil wealth around the world. In an attempt to kill the burgeoning American shale oil industry, Saudi Arabia did what only they can do: they slashed prices. They could afford this because the Saudis have enough oil that they could live off a loss in oil production for some 30 years without feeling the effects of their own luxurious lifestyle. The rest of the world, however, shuttered and stumbled, few places as much as Oklahoma and its still infant shale oil industry.

So shale responded by getting smarter by drilling down to one central location, which served as a hub for all the pipes that would be built, and also greatly improved the life of a well.

By becoming far more efficient two things happened: the United States is currently experiencing an energy boom, but… the market for all industries supporting the actual drilling up the oil collapsed. The jobs Oklahoma expected to still be there have withered as we’re seeing those jobs disappear due to simple better business practices and the still artificially low cost of Saudi oil. Then consider the natural process of oil drilling. Once the ground is mapped, the pipes are drilled, the infrastructure built, and the pumping started, there isn’t much left to do from a manufacturing perspective. If it isn’t profitable to drill more platforms, then the jobs aren’t going to be replaced elsewhere. Once the work is done, the drilling starts and there is no new job creation anywhere. Fewer jobs being created by the shale industry shook up the Oklahoma economy. As Oklahoma’s strategy hinged on the continued growth of the industry, and to live off taxes from incomes on all the industries that supported the oil, international maneuvering and the necessary response from local business left Oklahoma in a hard place. This is where Oklahoma has been for a few years. As the nation benefits from massive volumes of cheap and readily available energy, Oklahoma is in a recession.

I say this a former Oklahoma teacher. Speaking rationally, I can’t blame my principal or the school board for problems that are happening a mile under our feet and all over the state. I also can’t blame Oklahoma City for decisions that weren’t even made in the Western Hemisphere specifically targetting our way of life. I want to be angry, but there is just no one to blame on this one and realities we have which we need to accept and understand. Blaming won’t solve this one. Well, maybe there is someone to blame – Scientists and Saudis.

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